Com is an online eCommerce platform that sells various products including electronic items, books, cosmetics items, household items, directly or works as a middle man between the retailers and Amazon. Amazon is a multinational company that was founded on July 5, , by Jeff Bezos. Initially, Amazon was an online book store but since its establishment, it has come a long way.
Now Amazon has expanded and businesses, individual sellers, and manufacturers can sell almost everything including products, goods, services, etc. Moreover, from a retail company, Amazon has turned into a technology company because now Amazon deals with e-commerce as well as cloud computing, retail, and artificial intelligence.
Amazon is also involved in the field of consumer electronics and computer technology with Amazon Web Services. Amazon Web Services is a subsidiary of Amazon. Amazon warehouse is a type of business that stores and ships products that people order through Amazon. Therefore it requires the storehouse to process the online orders.
So, Amazon warehouses are distribution centers that work as an intermediary between sellers and customers. When customers order a product from Amazon, Warehouse receives the product from the retailer and then packs and ships the product to the buyers.
Amazon is a multipurpose eCommerce business platform. Sometimes the differences in business models are subtle. Take Apple and Amazon. However, with a more in-depth look your realize their model is entirely different. In fact, while Apple sells its iPhone at a high margin, Amazon sells its products at a thin margin in fact, the cost of sales for Amazon is almost as high as the revenue generated by its products.
In short, Amazon seems to use its products to ramp up its services revenues , which seems to be the real cash cow. Read : Google vs. Beyond the look, we have given so far at the Amazon Business Model, I want to give you an in-depth look so that you can really appreciate how the Amazon business model works and what powers up its business engine.
If we look at the Amazon revenue model , a few things pop up right away. As we saw the online stores are still the core part of the business. However, the core business is the foundation for other emerging businesses that run with different logic to its online stores. Where online stores run at tight margins and high volume by taking advantage of cash conversion cycles. One of the key elements of the Amazon business model is its cash machine business strategy.
In short, Amazon has operated and still does for years at very tight profit margins on its online store. The company has willingly done so throughout the years, as it made its prices low, convenient compared to traditional physical stores, and with a fast and efficient delivery system, what Amazon calls fulfillment centers. As Amazon collects payments quickly from its customers, it then pays its vendors with relatively longer payment terms.
This gives Amazon short-term liquidity that can invest back to speed up growth. With this mechanism, Amazon has been able to disrupt several industries. Starting as a bookstore online, it quickly expanded in all the other industries. One Amazon has built the most valuable two-sided marketplace on earth it has become way easier for the company to offer many other services. A few people realize among other businesses, Amazon has become a digital advertising provider.
And not a small one, but among the very few able to compete against the duopoly Google-Facebook. Indeed, as of the first months of , the Amazon advertising business netted over six billion in revenues! With such an infrastructure and many e-commerce hosted on Amazon infrastructure, more and more entrepreneurs and marketers are willing to pay for Amazon advertising services. Many companies nowadays have shifted to the subscription business model.
Amazon has converted part of its business to accommodate this change. The logic is simple, the more people join the Prime Memberships, the more products they purchase on the online stores. This subscription model also creates a more stable and predictable income over time. Started as an experiment back in , the Amazon AWS has grown to become an over seventeen billion dollars business in AWS also enjoys higher margins and network effects.
The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that starts from customer experience to drive traffic to the platform, which traffic gets monetized via Amazon selection of products and by inviting third-party sellers to join the platform. That improves the selections of goods, which Amazon would have taken years to build.
In turn, the customer experience improves further. At the same time, Amazon uses the cash generated to further improve its cost structure. Rather than distribute the additional cash to shareholders the company passes it on to customers via lower prices.
This process contributes even further to the virtuous cycle which makes Amazon expand and take over other industries. This marketing strategy has been used since the first years by Amazon to expand its operations. They saw a lack of profitability, exponential price to earnings ration and many assumed it was all a bubble. However, from a better look, that is how Amazon has always been structured. The company, rather than focusing on pushing profit margins, pushed to generate cash flows we saw it in the cash machine model that could reinvest as much as possible in the growth of the business, by being in a sort of continuous blizscaling-mode.
Amazon is a tech giant. Amazon also provides access to its Internet servers, giving companies more computing power. Beyond that, Amazon has also blazed a trail in the publishing industry with its Kindle e-reader and sales of e-books.
For these reasons and more, some view Amazon as a data company first, and a retailer second. Perhaps overall, though, we can say that Amazon from its very beginning is an e-commerce company that's widening to include other forms of commerce, or "waters," similar to the river that bears the same name.
Aaron Charles began writing about "pragmatic art" in for an online arts journal based in Minneapolis, Minn. After working for telecom giant Comcast and traveling to Oregon, he's written business and technology articles for both online and print publications, including Salon. What Kind of Commerce Is Amazon?
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